There are two events that determined in the past 9 months how the Bitcoin price developed. The first one is the release of US CPI data that happens each month. The other is the result of each FOMC Meeting, presented by Jerome Powell during a press conference. Both are connected to each other and the most driving factor in both the stock and the crypto market: Investor expectations.

How is inflation developing in the US and why didn’t the market nuke despite the expectation that a crash would happen?

Inflation is still higher than expected

The CPI for September rose to 8.2 % compared to September last year, but was expected to be 0.1 % lower than the result. It is true that the inflation is sinking compared to July and August, but it is the fact that it didn’t meet the expectation that is quite worrisome.

Now many analysts call for yet another steep rate hike as a reaction to the fact that inflation is still not coming down at these levels. It remains open how the Fed is going to deal with these numbers, but rate hikes are the most likely outcome. At the end of the day, the Fed can only react by increasing rates and quantitative tightening. There are no other tools available to this institution.

In Europe, the ECB is also prepared to increase the rates if needed. The problem both in the US and the EU is that this will damage the economy further and drives it deeper into a recession.

Why did Bitcoin hold up so well?

Many market commentators and analysts expected the market to drop further to new yearly lows, but nothing like that happened. When the CPI came in, the Bitcoin price fell, only to recover hours later and rise back above $19.000.

Bitcoin remains in a range of roughly between $19.000 and $24.000 since June. However, the range high was tested last time in August, and ever since the Bitcoin price fell only to crawl along the range low.

It is noteworthy that stocks pretty much made the same move. The S&P 500 dropped only to recover hours later, and the NASDAQ 100 shows the same pattern. It appears that the strong correlation between stocks and Bitcoin is still in place. This time it is not only the inflation data that matters, but the reports from the companies that show in many cases that they are doing better during the crisis than expected. Therefore, indices recovered and so did Bitcoin along with the rest of the crypto market.